What should you know about buying a business?
When you find a business you'd like to buy, it's necessary to consider a few aspects before deciding whether to make the purchase.
Check the deal carefully and answer the questions below. The answers will help you determine if the business you are buying is a safe investment.
- Why is the current owner selling?
- What is the growth potential of the business?
- If the business is declining, do you have the necessary elements to turn it around and bring success to the business?
- Is the business in a financially secure situation? Have you conducted a financial audit? Have you analyzed the financial statements for previous financial years? Have you reviewed the taxes paid by the company in the last 5 years, prior to purchasing the business?
- Have you seen copies of all ongoing contracts?
- Is the company under investigation or has it ever been investigated by any governmental body? If so, what is the status of the investigations? What were the findings of any previous investigations?
- Is there any pending litigation in the courts or arbitration proceedings in which the company is involved? If so, what is the status of this litigation?
- Does the company have any debts or other commitments? If so, what are these debts or obligations for and what is their amount?
- What is the percentage of the company's receivables past due? How many receivables become statute-barred annually?
- How many clients does the company consistently have?
- Who makes up the market for this business? Where are the customers located? Are all customers clustered locally or nationally, or are they spread across the globe?
- Are there variations in the company's revenues from one season to another?
- Does each existing client generate a significant portion of the current and past revenues of the company? If so, could the business survive in the absence of such a client?
Please note that the ability to maintain the business, at least at the same level, post-purchase, is directly proportional to having a broad customer base. Otherwise, if the business primarily serves a single client, the chances of sustaining its operations post-acquisition are very slim.
